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Watch out - a secret housing boom is taking us back to the 80s

29 July, 1999 | By Martin Pawley

News that mortgage lending reached £11 billion last month has not been greeted with the attention it deserves. The reports have all been downpage items - ten years ago they would have been front page news - and while several pointed out that the figure is a record, they also claimed that records only started in 1997, and dismissed any suggestion that the market might be 'poised to return to a 1980s-style boom.' Anything suspicious about that? Well yes.

For a start, records of mortgage lending did not just start in 1997: they go back a century or more. The records that started in 1997 were records of mortgage lending under the present government - a government that is becoming unpopular enough to be worried about finding itself presiding over a Thatcher-style housing bubble. Ergo, the muted media response. Nonetheless that is what a return to vintage 1987 lending figures says is on the cards. The only difference between a Thatcher boom and a Blair boom would be in this matter of presentation. In the 1980s, the government, from Margaret Thatcher downwards, gloried in a housing market where ten times as many houses were sold as houses built. In those days, owner- occupation was described as 'the response to a deep call of human nature'.

Owner-occupation in Britain began 80 years ago with landlords selling off houses that had been made unprofitable by rent controls imposed in the Great War. The boom in public-sector housing was different. That was something cooked up by Liberal and Old Labour governments, public sector in thought, word and deed, a sociological rather than an economic event. In the first half of our century government subsidised home-ownership, then home-ownership subsidised government. By the legendary mid-1980s, the owner-occupier housing market was a £100 billion-a-year business, the biggest in the country. By the time it stalled in the 1990s, owner- occupiers were financing the diy industry, the housebuilding industry, the travel trade, the furniture industry and so on. Untaxed capital gains made by selling or re-financing houses paid for cars, boats, foreign holidays, education and retirement. At the height of the 1980s boom, the building societies alone were lending £2 billion a week to house buyers and 're-financiers', and £50 billion a year was leaking out of the housing market into consumer spending.

In those days, ordinary people made real money out of buying and selling houses, even with mortgage interest rates in the mid-teens. Some made more money trading up in the housing market than they earned in their jobs. And they went on doing it until costs started to outweigh benefits and the volume of sales collapsed, turning home owners' equity into reverse equity.

Architects played a very small part in the growth of home ownership, but they played a large part in the expansion of its public sector counterpart. For architects, the private sector housing market seemed like a design straitjacket, while council housing was a licence to practise social engineering on a grand scale. The two approaches were inimical. In the 1970s, inflation led to public sector cut-backs while private sector house prices soared. As a result, while owner-occupiers broke the bank, local authorities were forced to sell off their estates. More than anything else, it was the discovery that many of these estates were unsaleable on the open market that gave architects the bad name in housing that they are still trying to lose.

So has the 'deep call of human nature' been exposed for the brute exercise of economic opportunity that it really is? Not at all. The illusions persist - the only difference between the new housing bubble and its predecessor is a change of government.

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